First Time Buyer Mortgages for Doctors
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Medics guide to first time buyer mortgages
What mortgages are available to first time buyers?
In theory, first time buyers are eligible to apply for any residential mortgage although some lenders will offer special deals for first time buyers as an incentive. However, The size of your deposit and your credit score are the main factors that determine which deals you can apply for.
Are there specific mortgages for first time buyers?
While special first time buyer mortgages are available, compare these to standard mortgages as these can often give you
a better deal, especially if you have a large deposit. You could even consider taking out a mortgage for a longer term.
How much do I need for a deposit?
Although it was possible to obtain 100% mortgages, these are now a thing of the past.
The key thing is to save as much as you can. In the current market you really need at least a 10% deposit in order to qualify for a mortgage (there are a few deals around with a 5% deposit but the rates are expensive).
You should, if possible, aim to save a deposit of at least 25% – that way you will have access to the widest range of mortgage deals and lower rates of interest.
How much can I borrow?
Traditionally, the amount a lender was willing to lend was based on salary multiples. Many now use more complex affordability models where they evaluate all your incomings and outgoings to work out how much you can realistically afford to borrow.
They have also become more conservative in the amount they will lend as a result of the economic downturn as many leant irresponsibly in the pre-credit crunch years and are now paying the price because many of those they leant to have been unable to keep up with repayments.
Generally speaking, as long as you have a good credit history, you should be able to borrow around three times your salary – perhaps a little more, but it will all depend on your existing borrowing commitments.
It is therefore worth seeking guidance as to what size of mortgage you will realistically be able to get before you start house hunting – the last thing you want is to miss out on a property you fall in love with because you can’t borrow enough.
What are the costs?
It is important to put by extra cash to cover the costs associated with buying a house.
A fee charged by lenders to cover the cost of setting up the mortgage. Some lenders waive this fee.
Lender’s Valuation (Basic Valuation)
All lenders require a valuation of the property to check that it is worth the price being paid for it. This is commissioned by the mortgage lender but you must cover the cost. The cost of the valuation depends on the value of the property – for example, allow about £125 for a property worth £50,000, £165 for a £100,000 house and so on. Some lenders do not charge this fee, as an incentive for you to take out a mortgage with them.
It is strongly advised that you have your own independent, more detailed survey carried out to check for any defects. There are three types of survey: the Valuation usually carried out for the Lender (see above); the Homebuyer’s Report which costs between £250 and £500; and the more comprehensive Building Survey (Structural Survey) which can cost anything up to £1,000 plus VAT, depending on the value of the house. You should also consider having newly built properties surveyed, although the condition of new properties is guaranteed by the builder, it is much safer to get any snagging carried out before you move in, or while you can retain money against outstanding works. The alternative of claiming from the builder afterwards can be a painful experience.
You will need to hire a solicitor to deal with the legal aspects of buying a property. There is no standard fee so it is a good idea to shop around for the best rate. Some solicitors charge a flat rate while others charge a percentage of the property price, normally up to half a percent. As well as the price of your house, the fee will take into account factors such as the amount of paperwork involved, how much skill is required and how complicated the transaction is.
You will also have to pay for the legal work done by your lender’s solicitor. Again, prices vary so ask your lender how much they charge. If you use the same solicitor as the lender to do your conveyancing this may save you money, but compare charges with other firms.
Stamp duty is a tax, charged for properties above £125,000. If your new home is priced between £125,001 and £250,000, you will pay 1% of the property price.
From £250,001 to £500,000, it will be 3%, over £500,001 to £1 million it will be 4% and over £2 million it will be 7%.
So, for example, if you are paying £200,000 for your home you pay £2,000 in stamp duty. For a £300,000 property the stamp duty at 3% is much higher in proportion to the purchase cost (£9,000).
Stamp Duty Land Tax Exemption in ‘Disadvantaged Areas’
If you’re buying a residential property in an area designated by the government as ‘disadvantaged’, you don’t pay any Stamp Duty Land Tax if the purchase price is £150,000 or less. To find out more about Stamp Duty Land Tax and how you pay it, please see the HM Revenue & Customs article Tax on Buying Property.
Land Registry Fee
The Land Registry is a government department which looks after the registers of all registered properties in England and Wales. It charges a fee for transferring the register to the new owner. This fee is charged according to property price.
Purchase Price (£) Land Registry Fee (£) up to 40,000
40 40,001 – 70,000 60 70,001 – 100,000 100 100,001 – 200,000 200 200,001 – 500,000 300 500,001 – 1,000,000 500 1,000,001 and over 800
Local Authority Search Fees
Local searches will be carried out by your solicitor/conveyancer to ensure that there are no potential problems such as planning permission on neighbouring properties or plans for new roads nearby. Allow at least £60, or more in London boroughs.
Other Search Fees and Disbursements
These include index map, commons, the coal authority, land charge, company searches, bank transfer fees. Allow about £70 to cover an average house purchase.
Estate Agent’s Commission
If you’re selling your property as well as buying one, the sum charged by your estate agent has to be taken into account. Usually this is charged as a percentage of the property price, around 1.5 – 2 per cent on average. If you are selling it yourself, you will need to pay for advertisements.
House-hunting itself can be a costly business – allow money for eating out, travel and telephone calls, and hotels if you are buying in a different area. Consider whether you will need time off work.
Ask for quotes from at least 3 different removal firms, as prices vary. Remember you will need to give tips. You can do the removal yourself, but this is much more time-consuming and inconvenient. If you are DIY-ing it, costs will include van hire (+VAT and insurance), petrol, and return travel from the van hire company when you return it. You will also need about £25 for insurance.
MIG Fees (mortgage indemnity guarantee)
This is an insurance premium charged by some lenders where your loan amount is more than 75% of the price of the property – in other words, where the loan to value (LTV) is greater than 75%. Other lenders do not charge an MIG, while some only charge when the LTV is more than 80 or 90%.
This is charged in case you default on your mortgage repayments and the mortgage lender cannot recover its money. Note that this protects the lender, not you.
Costs vary from lender to lender but typical MIG premiums are:
- 4 per cent of the amount borrowed above 75 per cent on a loan of up to 90 per cent of the purchase price
- 6 per cent of the amount borrowed above 75 per cent on a loan of up to 90-95 per cent of the purchase price
- 8 per cent of the amount borrowed above 75 per cent on a loan of up to 95-100 per cent of the purchase price
A few more to bear in mind:
- Buildings insurance premiums
- Contents insurance premiums
- Additional removal insurance
- Disconnection of services (water, gas, electricity, telephone)
- Reconnection of services
- Installation of new equipment
- Carpet laying
- Kennelling of pets
- Mail redirection
- Change of address notice
Leave a decent-sized contingency fund for emergencies. You do not want to be left completely penniless in case you have unexpected extra costs.
10 Tips for First Time Buyers
Buying a house is one of the most important purchases you will make, and buying a home for the first time will be an even more daunting prospect. Add to this the vast array of mortgage products available from a wide range of sources and you could be left with a high-stress, confusing decision. To help you with making the right decision we have put together 10 top tips for you.
- Ensure that you are realistic when working out exactly how much you can afford to spend on your new house. You should ensure the intended mortgage is affordable (by doing a budget calculation) and it is wise to seek a Decision in Principle certificate, so that you know how much you can offer once you have found a suitable property. Even a newly built house will require some sort of furnishings, whereas older properties may require extensive work, such as re-flooring, tiling or renewing the wiring. Make sure that you factor in all these likely expenses, in addition to the purchase price, and other fees such as conveyancing and stamp duty.
- When buying for the first time, there may be a number of details in the houses you are looking at, which you may not pick up. Always take an experienced home buyer, such as one of your parents, or a home-owning friend, when looking at property. If this is difficult to arrange, then make sure you at least get some assistance once you have selected a property you like and arrange a second viewing.
- If you have been used to living at home with your parents, remember to budget for expenses such as council tax, gas and electricity bills, boiler servicing, and other home repairs.
- Make sure you know what the likely council tax charge will be in your new property. The selling agent should be able to tell you what council tax band the house you are interested in buying is in, and how the charges are levied by your local authority.
- Even if you do not have children, remember that property in the catchment area of good local schools will always be much easier to sell on. However, this may also be reflected in a higher purchase price.
- Always consider how your transport arrangements will change in your new house. If you have a car, your insurance premium may increase dramatically if you move from a town with relatively low crime into a city centre with higher crime rates or if you move from your parents’ house with a locked garage to a smaller terraced house with on-street parking. If your car is insured in your parents’ name in order to reduce premiums, be prepared for these to be increased when you move into your new property and become the first named driver.
- Consider the availability of public transport services, making sure you find out local bus routes, the frequency of train services from your nearest station, and, if you are moving a long distance, the range of flights available from your local airport. Even if you drive everywhere, this information will be useful for anyone coming to visit you who does not drive.
- Write down a list of local amenities which are important to you. This may include shops, restaurants, pubs, sports centres, parks, and cinemas. If you enjoy activities such as walking, or cycling, the neighbourhood you plan to move in to may be very different to the one your parents are living in, and may not have the same access to parks and other recreational facilities. Before making any final decision about where to move to, take a stroll or bike ride around the local area, and note down where the key facilities are.
- If you are a heavy internet user, check to see that broadband or other high speed internet is available in the street you are moving into. The selling agent should be able to tell you this.
- Try, where possible, to find somewhere to live that is close to your main place of work. Commuting can be one of the biggest household expenses, and as you are likely to be spending much more time on domestic chores and/or DIY, living somewhere which minimises your commuting distance will be very important. If property is more expensive nearer to your place of work, make sure you weigh up this additional expense, when compared to the costs and time of commuting. You may wish to ask colleagues in your workplace to see if there are possibilities to lift share with anyone from the area
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Your home may be repossessed if you do not keep up repayments on your mortgage